The pursuit of recovery has understandably taken precedence over rebalancing the economy. The original idea of the Coalition was to shift from too much reliance on a debt financed public sector, to more reliance on an energetic private sector. Within the private sector, there was a wish to reduce dependence on financial services and banking, and increase the share of manufacturing. I was always very happy with these aims, with the possible amendment that I did not wish to see actions taken to curtail successful activities in the service sector, but rather wished to see better conditions to allow faster growth in manufacturing as the best way of rebalancing within the private sector.

           As we have seen over the last three years the government  has not stuck to the task of rebalancing. Real public spending continued to rise, with the pace only recently slowing down.  Instead of just being bombarded with complaints about too little spending, there have been many still writing in against HS2, high overseas aid budgets, the waste of the European budget, misdirected spending in a variety of public services and much else, whilst the modest steps so far taken to curb the gr0wth in welfare spending have led many to want the government to achieve more in cutting welfare bills.

           Nor has the government done enough to trigger a major manufacturing revival. The task has been made more difficult by the continued recession in Euroland, a prime market for industry. It has also been deferred by the high and rising energy prices, which have made high energy using industries less competitive and also made it tougher for any well automated factory. There has been no breakthrough with reducing the costs of EU regulation. The Coalition has watched as new law is heaped on new law, often making it dearer to do business in the EU. The policies needed to raise educational and training standards and produce a new generation of engineers, physicists, chemists and mathematicians of the kind modern industry needs by definition will take time to come to fruition.

                   The government does need to concentrate on a supply side revolution. Productivity has been poor in the UK since the crash. There are still sectors where competition is weak or non existent thanks to government interference.  Our transport networks are not as good as we need. The government is now turning  its attention to water, to power, to roads and to broadband. It needs to do so. The march of the makers the Chancellor vividly wanted will depend on a better approach to education and training, to transport, to energy and to competitive markets. Above all it needs cheaper energy to  bring about, something the Chancellor is keen to achieve.

 

The world’s economic advance is increasingly spearheaded by the great cities of the world. Europe only has two of them, London and Paris (and there is Moscow). The USA has several, whilst rising Asia is pitting  its traditionally successful city states against a new tide of fast growing cities in India, China and elsewhere.

If we look at the OECD list of richest regions in the world as measured by GDP per head, it is led by London (Inner west) at a mighty $152,116 a head. The District of Columbia around  Washington USA comes second, at $131,343. Paris is the best of the continental cities, at a very successful $76,146 for the city as a whole. Edinburgh appears high up with $49,970, parts of the UK Home counties do well and Inner London east is there at $47,470.

Germany is not well represented. Its best performers are Hamburg and Munchen at  just under  $47,000.

It is another way of looking at the German/UK comparison we tackled yesterday. If the successful world model today is the large conurbation that attracts people of all types and languages to bring their skills, energy and money, the UK , US, and France have what it takes and Germany does not. To succeed a world city needs to encompass a population of  around 10 million in the city proper and close surroundings. It needs to be very open to talent and money from outside. It needs to have premium properties available for foreigners to buy. It needs a  great ambience, plenty of good high specification modern commercial space, and preferably some iconic older buildings and symbols of the city. It has to have great food, great drama and music, great art, and generally great entertainment.

Some object to this model of development. The gaps between the typical income in say central Paris, and poorer rural France can become very large. This is, however, no greater a gap than that between the eastern regions of united Germany and the richer south west. Mr Hollande’s attempts to curb the inequalities by imposing higher taxes on the successful has led to difficult court challenges and to a big exodus of well paid people, reminding him that if he wants France to keep one of the world’s great cities it has to understand the need to remain competitive.

 

             I missed the BBC propaganda movie arguing it’s better in Germany. Apparently the German emphasis on more rented housing and industry makes for a richer and more successful economy and society. Let us examine that proposition.

                If we look at the income per head figures the comparisons are interesting. In Europe the two richest countries are non EU members, Norway and Switzerland.  They are more than $5000 a head richer than Germany. Norway manages it thanks to great natural resources, fish and oil, that stay outside the clutches of the EU. Switzerland manages it thanks to excellence in selected industries like watches and chocolate, complemented by banking and financial services.

                  All the surveys also show that the USA is richer per head than Germany or the UK, by around one quarter or $10,000 a head. If the BBC is keen to see how we can live more prosperously, it might make the odd film that was complimentary about the USA.

                     The Penn (Pennslyvania University) World survey shows the UK just ahead of Germany in income per head by $300. The IMF shows the UK a little below, by around $2000. All the main surveys agree that the UK and Germany are usefully ahead of Italy and Spain, and most put the UK ahead of France and Japan. There is nothing in the figures to suggest Germany is way ahead, or that Germany is anywhere near catching the USA, Singapore, Norway, Switzerland  and the other world leaders. Germany is also usually ranked below Sweden and Denmark ,  non  Euro members of the EU. On the numbers there is not a great deal to explain about alleged superior German performance.

            I cannot see how having more rented housing is a magic ingredient that helps Germany. The UK has experienced a rising private rented sector in recent years, but these have been poor years for overall growth of the economy. Most people still have a strong preference for ownership, and there is nothing wrong with an economy that seeks to satisfy that natural wish for as many as possible.

          It is true that Germany has a strong and successful engineering sector, larger than the UK’s in many segments. Where the UK is strong in aerospace engineering and defence related, Germany is larger and stronger in cars, heavy plant and machinery. Where Germany is strong in basic chemcials, the UK is strong in pharmaceuticals. The UK relies on a bigger and more successful service sector, especially in business, legal and financial services.

           As someone who has in the past  run companies with engineering plants in the UK, the US, Germany and elsewhere I would urge people to beware of facile generalisations. I have seen poorly led German factories where Anglo Saxon managers can teach them things, and I have seen brilliant German factories with state of the art equipment. There is a bigger spread in quality and achievement within both Germany and within  the UK when it comes to factories, than between the German average and the UK average. USA  productivity is on average higher. The BBC should go and find out why, by talking to some US workers.

 

             One of my most poignant memories of being a Minister was trying to secure some benefits when I offered more money to the Welsh NHS in their budget settlement. I wanted them to appoint more Consultants, doctors and nurses to clear hospital backlogs and shorten waiting lists.  As soon as I revealed I had found a substantial sum from other budgets to offer  to the NHS, a vanishing trick started with plenty of other ways appearing to use or lose  the money on offer without hiring more medical staff.

             Listening yesterday to the offer of £500 million extra over two years to the NHS in England made me ask what will we  buy with this?  The politics was well thought through. The offer of extra money demonstrates Ministers’ concerns. It tackles head on the likely response to the question why are A and E departments under too much pressure. If the NHS counters by saying their budgets have not gone up enough to cater for demand, the extra money answers that criticism. Minsters can say they cared, they did what Ministers can do by voting the money. Now it is up to the NHS managers to deliver with better A and E services.

          Then I heard the usual efforts to claim that £500 million would soon vanish. Some said it would be diverted to paying for social services, so more elderly people could be taken care of in the Community and not sent to A and E. Some said it was simply not enough. Others implied they would not be rushing to spend it on more Consultants and nurses to ensure the work could be done in  a timely and professional way.

           The government has said more money must be allied to reform. That was Mr Blair’s mantra, though he failed to deliver much of the reform. They say this, as they understand the problem. If every problem is perceived to be  caused by a lack of money rather than by bad management, failure to run an efficient and high quality service, or failure to spend wisely on technology to assist good staff, then it will always be possible to use that excuse. If the government gives £250 m and there are still problems in A and E the answer can still be that £250 m was not enough.

         The money we learn is to be given to a limited number of A and E departments that are under particular stress. That makes sense if it is the result of varied levels of demand compared to the size of the unit. It is less sure footed if it means more money is given to the departments and hospitals which have performed worse. There is a danger that awarding more money selectively can reward poor conduct and penalise good practice.

           It is easier pointing out the problems than solving them. The government does need to insist on sensible reforms to make sure this time the extra money buys something  we want and need. It should ensure that extra money is allied to better performance in those A and E departments that are struggling.

 

        I can understand why savers are not happy this morning. They heard yesterday from  The Governor of the Bank of England   that Base rates are going to remain nailed to the floor for the time being. There is no relief in sight for savers, who have had a rough deal on savings rates ever since the crash in 2008. It will be the borrowers, including the state, that spend us out of the  crash and slump of the last decade. They will enjoy  more cheap borrowing this decade to spend beyond their means. The savers will not be allowed much return on their money, so they will lack spending power. They indeed will spend much of their time awaiting the knock at the door from the taxman, ever more inventive in finding  ways of parting savers from their money.

         When Mr Carney first thought of offering guidance about interest rates, he probably had in mind the need to tell people interest rates would be low for a long time to try to kick start the UK recovery. The background was worries about triple dip recessions, forecasters revising their growth forecasts down, and general pessimism about the UK’s prospects.
 
             As he was preparing to take up the job, the need for future guidance also seemed to be underlined by the market wobble over the question of when and how Quantitative Easing would be reduced and stopped in the USA. A few words from Mr Bernanke at the Fed caused a sharp fall in markets, as people rushed to the premature conclusion that quantitative easing would stop and interest rates would go up  before the end of this year. Mr Carney probably thought he needed to tell the markets that whatever happened to US rates, UK rates were fixed to the floor for the time being.
 
          So it is one of those ironies of history that by the time Mr Carney came to give us his conclusions on forward guidance the backdrop was transformed. The UK was no longer going sideways, facing treble dip or suffering from an insurmountable  double dip. The outlook as measured by second quarter GDP, forecast third quarter GDP, confidence indicators for manufacturing and services, and retail sales was suddenly bulllish. Forecasters are all busily revising up their 2013 and 2014 forecasts for growth. The OBR had  to correct the misleading impression of double dip that the historic figures showed.
 
             By the time Mr Carney spoke yesterday the question was not could he by his words bring the UK economy to life. It was rather, could he by his words avoid damaging the faster recovery now underway? Could he even satisfy the minority of  his critics who were massing on the other side of the argument, to say that the danger now is too much cash and credit in circulation, too many pressures leading to  asset bubbles and general inflation?
 
             As it turned out Mr Carney’s statement was well judged, and should do no damage. It alters the reality of the position very little if at all. Most of us assumed the UK authorities were aiming to keep Base rate down at 0.5% this year and next to give the recovery a fair wind. Most of us forecast that the authorities will allow some growth in asset values  as part of confidence boosting measures, without it getting out of hand any time soon.
 
              The new Governor has said interest rates will stay down at 0.5% all the time unemployment is above 7%. He has forecast that unemployment will not drop below this figure this year next year or into 2016. The Bank would only reconsider this position if inflationary expectations rise too far too fast, or if there is potential damage to the financial system ahead, or if forecasts of inflation rise too high. These statements are delicately balanced. It means there are several circumstances in which short rates could have to rise earlier than planned. The central case of the Bank’s forecast is that short rates remain at 0.5% for at least two more years. That should not come as surprise to anyone who has been following this debate.
 
          Now all that remains is to worry lest the economy does too well! Only if asset prices take off, activity puts upwards pressure on prices, and inflation expectations surge should borrowers worry about rising short term interest rates. That sounds much like the world we thought we lived in yesterday. It does not change my forecast of a reasonable recovery this year and next. Nor does it lead me to think, as some of the critics suggest, that the Bank is yet taking too much risk with excessive money and credit. It needs to be watched from here, but it is not yet a nasty bubble in the making. Meanwhile , pity the poor savers. They have to sit tight for very little, or take more risk in the hope they win rather than lose.

The retail sales figures were better this month. They confirm the feeling that the UK economy is now recovering at a faster pace. The forward indicators suggest we will experience reasonable growth again in the third quarter of 2013, with the service sector looking good.

It is true that many household budgets are squeezed. Labour wish to highlight this, but they should remember the worst of the squeeze occurred in  2008 and at the end of their period in government. Since then wage growth has been very subdued, whilst price rises have still been of concern.

It looks as if there will now be more confidence. Consumers have more confidence to buy things, probably because there is now less fear of losing your employment. Companies have more confidence, leading them to invest more and spend more on marketing and training. Homebuyers will have more confidence to buy a first home or trade up.

The industrial revival we also need still requires policies that promote cheaper energy. The recovery will be easier if more is done to mend the banks and to permit them to lend sensible extra amounts of money.

Mr Carney the new Governor of the Bank of England  today needs to be careful. Issuing forward guidance is difficult, as it has to be credible and adaptable to changing conditions. He needs to avoid offering any nuanced or complex guidance which makes some people think low short term interest rates could end sooner rather than later, if he is to succeed with his aim of encouraging more spending and investment by reassuring spenders and borrowers that rates will stay down.

 

               I am in favour of speed limits. It makes sense to say to drivers in busy built up areas they should not go above 30mph when the road is clear, just in case something unexpected happens which requires them to brake or swerve. The national speed limit of 60mph is also a wise precaution on most roads where there is no lane segregation and no single direction access and exit from the road.

             The old rules were fairly simple. If you were driving in a built up area with street lights, the speed limit was 30. You were told this on original entry in to the town or village, and told of its end on exit by a simple sign. The rest of the time commonsense told you it was 30mph from the surroundings and the street lights. If you started your journey within the built up area you knew it was 30 from the environment.

           In recent years there has been a profusion of intermediate speed limits. There is no obvious logic to the choice of some of them. The other day I counted the number of changes of speed limit on a 15 mile journey locally. I counted 16 changes of speed limit. It varied between 20,30,40,50 and 60 mph. I did not go onto the motorway which would have added a 70.  There were pieces of road with street lights where the speed limit was higher than 30mph, without frequent repeater signs on  the lampposts to remind you of the different limit. Apparently similar roads through built up areas changed from 40 to 30 and back again.

           Research shows that drivers are best at obeying the 60 speed limit on non dual carriageway roads. They regard 60 as the upper limit of what is wise on such roads, and normally drive well below 60 given the bends and hazards on such roads. When it comes to the 60 limit most understand it is an upper limit, which you do not normally achieve.

          When I travel on motorways, seeking to keep to a steady 70, most traffic overtakes me. It looks as if most drivers judge around 80 to be a safe speed on motorways, and probably take the risk thinking  they will be unlucky  to be prosecuted if they stay below 80. There does not seem to be much driver buy in to the idea of 70. Motorways are our safest roads,  because traffic travelling in different directions is kept apart and because vulnerable road users like pedestrians and cyclists are not allowed on them. In this respect motorways are more like railway lines, which are also segregated and do not allow any other users to share the route.

              30 mph areas are more difficult. There is a stronger case for the 30 than for the 70 on motorways, and most people if asked would say they agree with the 30 limit in built up areas with single carriageway roads. Yet when it comes to driving modern cars with good brakes and steering, many drivers reckon they are safe at more than the speed limit and allow the speed to drift up. If speed limits are to work well, there needs to be general acceptance of them by the driving public.

            Many drivers do think the profusion of differing limits and frequent changes of limit can be counterproductive. Drivers end up studying road signs and speedometers more than is healthy  for keeping alert to what is going on on the road ahead. Traffic managers should be careful before introducing too much complexity. Speed control has to be part of helping get people to their destinations with   safety for all road users, not part of a policy to stop people using cars or trying to make the motorists task too difficult.

 

           Having plenty of suitable places for people to park their cars is a necessary policy on a crowded island like ours.

         If we can ensure more of our cars are parked off road when they are not being used,  more of the road space is available for when we do wish to use them. Taking cars off road should offer them better protection, and make getting into and out of them  safer and easier, especially if you have bags with you at the time.

          Having plenty of easy to use parking near shops is important to the success of shopping centres. You cannot easily go shopping by train, as it is cumbersome returning with the bags and packages, and they are not welcome on most trains. Buses too have their limitations when it comes to the weekly shop, though they can get a bit nearer the shops than trains can. Many buses have very limited space for luggage and shopping bags.

           Getting children to and from school by car as many do is also a hazardous and difficult process. Most state schools now prevent parents driving into the school grounds to drop off and collect, wishing to avoid danger on school territory and responsibility for safety. As a result many children are dropped off by the side of busy roads, often more dangerous than in the school grounds. Councils have countered in some cases, appreciating the dangers, by putting in lower speed limits at drop off and pick up times of  day. This still does not prevent accidents from opening doors without watching, pulling out too quickly, or a passing motorist unable to see a child darting out from behind a vehicle into the road.

           Mr Pickles has recently intervened in this debate and urged Councils not to see parking as just another money raising opportunity. Some  Councils can and do exploit monopoly positions on parking, others exploit a shortage of private sector alternative provision or work with private operators keeping spaces limited. That is why Mr Pickles suggests that it should be easier for people to rent out their driveways where they wish, to give them a new  source of income and to provide some competition to Council car parks to help keep prices down.

                  He has also asked whether we could have some greater tolerance of short term parking in resticted places to buy a single item or pick something up from an adjacent shop. In some places enforcement is sharp and unrelenting, whatever the circumstances.

                    We do need a new parking settlement. New housing should have better parking provision to keep more cars off the road. Councils should look again at how they can provide safer access to schools, to lessen clashes with busy roads. Town centre improvements should include the supply of plentiful and sensibly priced parking to encourage more people  in, instead of driving to a bigger centre further away or using the out of town facilites  to the exclusion of the town centre. Some double yellow restrictions are crucial to the free flow of traffic and should not be relaxed, but other limitations, especially many single yellow lines,  could be considered for short stay parking without impeding the main highways.

                Councils should see parking as an important service to help keep town centres lively, to facilitate people getting to work and school, and to help local businesses. Just seeing it as a source of revenue forces parking prices up, frustrates people trying to find one out of too few spaces, and adds to the sense of injustice many taxpayers feel who put much money into the system but seem to get very little back.

 

 

           It was good news that at last RBS is making a profit. It was, unfortunately, a very small profit in relation to the massive amounts of capital employed, but it is a lot better than the run of losses we  long suffering taxpayer shareholders have got used to.  A bank with a balance sheet of £1.2 trillion needs to make £12bn a year just to provide a 1% return on total capital, or around  10% on shareholders capital assuming the conventional 10% ratio of shareholders funds to total assets. A return of £1.4bn in half a year is low.

          There is also a new Chief Executive in the wings, already working for the bank. What is needed now is a new strategy, a sense of direction and purpose, the promise of a better bank or banks to come. The Chancellor has set up a quick review of the future of RBS. Let me set out again the case for creating more banks from within the Group.

          RBS was never a successful conglomerate. The economies and scale and efficiency gains  from assembling a wide range of different banks never materialised. Instead the shaky financial structure and the overstretch the large rambling group imposed on the management brought the proto giant down. It had no time  to prove major  benefits from a series of mega mergers culminating in the ABN Amro one just before the crash. Some of us who opposed the mergers at the time could not see how a single management could weld these disparate banks and businesses into a more successful whole. Cross selling within a Group full of differing styles and practices is never easy, and prone to conflict of interest obstacles as well.

           The new team should have as its aims returning money to taxpayers and creating a better group of banks that can contribute to UK economic recovery.

            Selling Citizens, the US bank, is a relatively simple first task. It would release cash and management time, and allow a successful free standing US bank to make more progress under new ownership. A special capital  pay out could be made to RBS shareholders.

             Segregating Ulster Bank, the cause of many problems, would assist the recovery of the rest. Ulster Bank before it can be returned as a free standing competitor would need to be recapitalised, from some of the proceeds of other sales within the Group. It may also need some Treasury continuing guarantees or support as it works through its remaining difficult loans.

              The Investment bank has in the past been a  major contributor to RBS profits, or a source of profit to offset losses elsewhere. It is proving difficult to run a fully competitive successful Investment bank within the confines of public sector ownership of the Group. Investment banker remuneration and activity is difficult to justify if taxpayers stand behind it. There are two answers . One is to float it off separately. The other is to twin it with one of the clearing banks in the RBS group suitable for early sale. Perhaps adding it to Nat West, recreating the old County/Nat West relationship could be achieved. Delay in sorting out a future for the Investment bank is likely to damage it, as talent leaves to go elsewhere.

              Next we need to ask  how to sell the UK commercial banks within the Group. Management will probably favour keeping them together. Some progress has been made in rationalising the network and back offices. However, from the competition point of view it would be better to recreate Nat West, RBS and Coutts, for example, as independent brands with their own range of assets, liabilities, clients and services. This may take longer than a simple share sale, but would help promote more banking competition in the UK and woudl allow the establishment of more well financed competitor banks which can be sold off as soon as the work is done establishing them.

             The management may well be against. After all, they have spent time trying to find synergies and benefits from more integrated working. However, with the right leadership and incentives it might be possible to carry out this work relatively speedily and end up with a much stronger and better banking sector. If it is not, the best option is to drive harder for a more profitable remaining RBS and sell shares in it as soon as possible. Taxpayers owning banks, especially Investment banks, is not a good idea. One way or another we need to cut taxpayer risk and get some money back.

 

 

 

           The tragedy of the starvation and torture of a four year old is difficult to take. I am still profoundly shocked by evil, even though I have seen, heard and read about all too much evil over the years. It is particularly difficult to grasp how anyone, let alone a mother and acting father, could treat a defenceless four year old in that way over such a long period. Of course the murderers were the parents and they are rightly now condemned.

           Maybe because most of us could never contemplate deliberately harming a child, no-one in the community around took any action to help, protect or save him as  no-one saw the danger to him from his parents. Let us hope the serious case review tells us more of why that happened. So far the media implies that those teachers, doctors, nurses, and neighbours who saw something was wrong were deterred from taking action by lies from the mother who apparently  always had a cover story for the boy’s conduct and state of health.

            The ultimate sadness comes from realising that the one small voice which was never heard in all this was the voice of  Daniel himself. Why was he never asked why he was scavenging for food? Why was he never asked if he wanted a school dinner? Why was he never allowed to speak about how he was bruised, or emaciated, or had a broken bone? Or was he asked but no adult listened intelligently to the reply or lack of reply? Did no responsible adult ever speak to him without his mother present? Did they never detect his fear or his hesitation in answering, if he held back the truth from a sense of fear of home?  Could he not trust any adult around him sufficiently so he could tell them the truth?

          One of the things the enquiry should look at is the way adults can and do communicate with children in  their care. Of course caring parents and  adults have a right not to be spied on through their children, and we need to remember children too can lie. But surely if we had healthier relations between adults and children, not weighed down too much by political correctness, fear of misunderstanding of the adults’ motives, or a simple reluctance by adults to listen to what children say at all, we might spot such a heinous crime as this before the death of its victim? We need to protect children against that  minority of adults who prey on children for their own vile motives, but we need to allow the rest  to engage with children so there is some mutual trust.

           In a recent BBC interview we were as always directed to resources, to local authority budgets and priorities. This surely was not a matter of budgets and priorities. Health care workers, teachers, and social workers all saw this child, all were paid salaries to help him. This is not a shortage of resources, but a failure of communications, a failure of many in society to take a little care for a helpless and tortured four year old. Rather than pick on one or two people who could have done better, maybe what we need to do is look at the general issue of how adults in caring professions relate to children and when they should ask the child to tell them what they think and feel when there are worries or suspicions.

                 Doubtless many good teachers, social workers and medics do just this and save children as a result. We need to spread the word to others who do not.